New Delhi: Bankruptcy courts are taking a lenient view on the insolvency framework to give more time to banks, beyond the 270-day ceiling under the Insolvency and Bankruptcy Code (IBC), to revive failed companies. 

The trend, which was visible in a number of recent cases, indicates courts were willing to go the extra mile to avoid the unwanted side effects of firms going into liquidation, such as job losses, and its impact on the economy, said experts.

Under the bankruptcy code, lenders are given 180 days, extendable by 90 days, to decide on a plan to turn around a defaulting firm by leveraging all its assets, revenue streams and business potential. However, firms undergoing resolution have seen court battles eating into the time available to bankers to decide on a corporate rescue plan. But the National Company Law Tribunal (NCLT) has, in most cases, decided to exclude the time lost in litigations from the 270-day window to decide on a turnaround plan. Many among the 12 large firms that went into bankruptcy have breached the 270-day deadline following litigation challenging their resolution plans, while the rescue plans of a few others, such as Monnet Ispat and Energy Ltd and Amtek Auto, were approved uncontested.

Data with NCLT suggests 390 firms admitted for resolution have breached the 270-day ceiling. Of these, around 50 cases were resolved, while 145 went into liquidation. 

Around 195 firms are still at various stages of litigation, according to law firm Corporate Professionals.

“The object of IBC is to provide resolution and not liquidation, as the latter has several collateral damages. Thus, NCLT benches are now taking pragmatic and judicious calls and not allowing liquidations easily even if the process goes beyond the statutory timeline of 270 days," said Manoj Kumar, partner, Corporate Professionals.

Since the bankruptcy code became operational in 2016, about 948 cases have been admitted by the NCLT for insolvency resolution. Disputes have become common, as the promoters, who risk losing control over their firms, and other stake holders, including companies bidding for the stressed assets, are contesting various decisions of the lenders or the resolution professionals.

State-owned lenders have been aggressively taking defaulting companies to the tribunal to recover as much of the 8.3 trillion of bad debts as possible and, the government, on its part, has made several amendments to the code to make the process more equitable. The menace of rising non-performing assets in the Indian banking system has crippled the ability of public sector banks to finance new projects. 

In the latest round of amendments brought in through an ordinance last month, home buyers, who collectively contribute with larger funds to builders, compared to lenders, were given the status of financial creditors. The bill to replace the ordinance was passed in Lok Sabha on Tuesday.

Close